ERIC ED473893: The Role of Parental Work in Child Poverty. A Report of the Heritage Center for Data Analysis.

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Rector, Robert E.; Hederman, Rea S., Jr.

The Role of Parental Work in Child Poverty. A Report of the
Heritage Center for Data Analysis.

Heritage Foundation, Washington, DC.

2003-01-27
15p .

Heritage Foundation, 214 Massachusetts Avenue, N.E.,
Washington, DC 20002-4999. Tel: 202-546-4400; Web site:
http: //www . heritage . or g .

Reports - Descriptive (141)

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*Child Welfare; ^Employed Parents; ^Employment Patterns;
Family Income; ^Poverty; Welfare Services

ABSTRACT

This report analyzes the relationship between parental
employment and child poverty using two measures of income: money income,
which includes most cash received by the family but excludes a wide range of
welfare aid, and expanded measures of income, which includes food stamps, the
Earned Income Tax Credit, and school lunch subsidies. This measure also
deducts FICA, or Social Security taxes, from income. Results suggest that low
work levels by parents are a major cause of child poverty, as opposed to
parents* low hourly wage rates. While most poor families with children are
"working families, " on average, the level of employment in poor families is
quite low. Roughly three-quarters of all poor families with children have
total parental work levels of less than 2,000 hours per year (the equivalent
of one adult working 40 hours per week for 50 weeks). Nearly half of all poor
families with children have less then 1,000 hours of paid employment
throughout the year. Despite the availability of extensive government
support, nearly 4.4 million families with children remain in poverty. The
report concludes that even at current wage rates, child poverty could be
dramatically reduced by increasing the number of hours that parents work
throughout the year. (Contains 13 endnotes.) (SM)

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The Role of Parental Work
in Child Poverty

Robert E. Rector and
Rea S. Hederman, Jr.

CDA03-01 January 27, 2003

!efitage*Thundatiosi

214 Massachusetts Avenue, NE • Washington, D.C. 20002 • (202) 546-4400 • www.heritage.org

NOTE: Nothing written here is to be construed as necessarily reflecting the views of The Heritage Foundation or as an
attempt to aid or hinder the passage of any bill before Congress.

CDA03-01

January 27, 2003

The Role of Parental Work
in Child Poverty

Robert E. Rector and Rea 5 . Hederman, Jr.

In discussions about poverty in America,
concern is frequently expressed regarding
working poor families with children. Many
perceive the working poor as families that
work full-time throughout the year yet still
have incomes below the official federal poverty
levels.

While some poor families fit this profile,
most do not. Among poor families, when work
does occur, part-time or part-year work is the
norm. Examination of data from the U.S. Cen-
sus Bureau’s Current Population Survey (CPS)
for 1999 reveals the following:

• Among poor families with children, one-
quarter to one-third have zero employment
throughout the year. Over one-fourth of
poor families have full-time employment
through the year (2,000 or more hours of
paid labor) but remain poor. The rest have
some employment but less than full-time/
full-year. Overall, among all poor families
with children, the median hours of adult
employment are between 650 and 1,000
hours per year.

• Moreover, evidence strongly suggests that
the amount of work performed by poor
families is substantially over-reported in
the CPS. When adult earnings are divided
by number of hours of work reported per-
formed by adults, over 40 percent of work-

ing parents appear to earn less than the
minimum wage; about one-quarter appear
to earn less than $4.00 per hour. This
strongly suggests that, in the CPS, hours of
work are over-reported, earnings are
under-reported, or both.

• The fact that nearly three-quarters of all
poor families with children have less than
full-time/full-year employment indicates
that child poverty could be sharply
reduced if adults in these families worked
more. Indeed, if all currently poor families
with children had full-time adult employ-
ment throughout the year (at least 2,000
hours), the child poverty rate in the United
States would be cut by 72 percent.

• The increase in work to a minimum of
2,000 hours per family would nearly dou-
ble the average income among families
with children currently living in poverty.
The aggregate income of these families
would increase by nearly $36 billion. 1 The
median income of families with children
currently living in poverty would rise from
$9,826 to $17,488.

These findings indicate that public promo-
tion of higher levels of employment and work
among poor parents will substantially reduce
child poverty. By contrast, policies that reward
idleness will increase poverty.

1. The mean income of the 4.37 million poor families with children in 1999 was $10,204. After the simulated
increase in hours worked, the mean family income would rise to $18,402.

3

THE HERITAGE CENTER FOR DATA ANALYSIS

S Chart 1 CDA03-01

Poor Families with Children by Annual Hours of Adult Work*

Percent of All Families Wrth Children That Are Poor

Annual Hours of Paid Labor By All Adults Within Each Poor Family

Note: * Money Income Definition.

Source: U.S. Bureau of the Census, Current Population Survey. March 2000.

Recent experience indicates that welfare reform
policies can be extremely effective in increasing
employment. For example, in 1996, Congress
reformed the traditional Aid to Families with
Dependent Children (AFDC) program, replacing it
with a new program called Temporary Assistance
to Needy Families (TANF). The TANF program
required many adult recipients to engage in con-
structive activities directed toward self-sufficiency
(for example, supervised job search, training, or
community service work) as a condition for receiv-
ing aid. As a result of these requirements, welfare
rolls shrank and employment among single moth-
ers soared. Employment of never-married moth-
ers, for example, increased by 50 percent. As
employment among single mothers grew, poverty
within that group fell by a third.

WORK AND POVERTY AMONG
FAMILIES WITH CHILDREN

Each year, the U.S. Bureau of the Census calcu-
lates the number of families and persons living in
poverty. A person is deemed “poor” if he lives in a

family with an income below the official poverty
income thresholds. For example, in 1999, the offi-
cial poverty threshold was $13,423 for a family of
three and $16,895 for a family of four.

Obviously, the count of poor persons will vary
depending on what economic resources are
included as part of the family’s income. In this sec-
tion, we will examine work and poverty using two
different measures of income. The first is “money
income.” This is the most common measure of
income employed by the Census Bureau; it
includes most cash income received by the family
but excludes a wide range of welfare aid such as
food stamps, the Earned Income Tax Credit, and
public housing.

We also analyze poverty using an “expanded
measure of income” that includes food stamps, the
Earned Income Tax Credit, and school lunch sub-
sidies. This measure also deducts FICA, or Social
Security taxes, from income.

Chart 1 and Table 1 both show the level of paid
adult employment among poor families with chil-

2

THE HERITAGE CENTER FOR DATA ANALYSIS

5

THE HERITAGE CENTER FOR DATA ANALYSIS

dren in 1999 using the “money income” standard.
As the chart shows, roughly one-quarter of poor
families with children had no adult employment
during the year. Approximately one-quarter had
adult employment between one and 999 hours
during the year; and another quarter had between
1,000 and 1,999 hours. Slightly more than one-
quarter had at least full-time/full-year employment
with 2,000 or more hours of paid work. (The fig-
ure of 2,000 hours represents an average of 40
hours of work per week over 50 weeks.)

While the level of work among these poor fami-
lies is greater than generally perceived, nearly
three in four working-poor families had less than
full-time/full-year employment. The median num-
ber of hours of work among all the families was
1 ,040 per year. The lack of full-time employment
was a major factor contributing to poverty.

Table 2 presents the same data using the
expanded definition of income. With the inclusion
of the EITC, food stamps, and school lunches in
calculating income, the number of poor families
with children falls significantly — from 5.4 million
in Table 1 to 4.4 million in Table 2. Since many of
the added welfare benefits supplement the wages
of low-income parents, the share of poor families
with over 2,000 hours of employment falls from
27.8 percent in Table 1 to 23.5 percent in Table 2.

The share of poor families with no employment
increases to 32.5 percent in Table 2. The median
hours of work among all poor families falls to 660
hours per year.

The differences between Table 1 and Table 2 are
evidence of the effectiveness of some welfare pro-
grams (especially the EITC) in raising the incomes
of working families — particularly those with full-
time workers — above the poverty thresholds.

As in Table 1, married-couple families are far
less likely to have no employment than single-par-
ent families (15.9 percent compared to 39.7 per-
cent). Nearly half of poor married-couple families
had more than 2,000 hours of work in the year,
compared to only 12.7 percent of single-parent
families. 2

Over-Reporting Hours Worked

The number of families that work a substantial
number of hours during the year yet remain poor
appears surprising. Indeed, examination of the
data strongly suggests that work levels shown in
Tables 1 and 2 are significantly over-reported.

Throughout the CPS data on poor families,
there is a significant discrepancy between reported
hours of work and reported earnings. As Table 3
shows, when total adult annual earnings in a poor

71 Table 3

CDA03-01

Apparent Hourly Wage Rates of Parents in Poor Families with Children

Annual Hours of Adult Work in Family

1-499

500-999

1000-1499

1500-1999

2000 or more

All Poor Families

Col %

Col %

Col %

Col %

Col %

Col %

Above Minimum Wage

63.56

63.84

66.90

58.68

48.15

57.58

Below Minimum Wage

36.44

36.16

33.10

41.32

51.85

42.42

! 00.00

1 00.00

100.00

1 00.00

100.00

1 00.00

Note: Workers reporting no hours or earnings are not considered in this table. Money Income Definition.
Source: Heritage calculations from the U.S. Bureau of the Census, Current Population Surrey, March 2000.

2. One factor that contributes modestly to poverty among working families is larger family size. Since the official poverty
income threshold increases with family size, families with more children need to earn more to keep the family’s income
above poverty. Poor families with children, on average, have 2.2 children per family. Poor married couples tend to have
more children than poor single mothers (2.6 compared to 2.1). Poor families that report no adult work have fewer chil-
dren (2.0), while poor families that report over 2,000 hours of work have, on average, more children (2.5).

4

6

THE HERITAGE CENTER FOR DATA ANALYSIS

j S Tabic 4

Apparent Hourly Wage Rates in Working Poor Families

Apparent Hourly

Poor Families with Children
with any Reported Adult Work

Poor Families with Children with 2000
or More Hours of Reported Adult Work

Wage Rate

Number of Families

Percent

Cumulative Percent

Number of Families Percent

Cumulative Percent

$0

30.620

0.78

0.78

21,448

1.43

1.43

$.01 to 1

147.083

3.74

4.52

96751

6.43

7.86

$1 to 2

199.697

5.08

9.60

77,054

5.12

12.98

$2 to 3

236,797

6.02

15.62

1 19,661

7.96

20.94

S3 to 4

414,215

10.53

26.15

149725

9.96

30.89

$4 to 5

613,835

15,61

41.76

294737

19.60

50.49

$5 to 6

606,858

15,43

57.20

262763

17.47

67.96 |

$6 to 7

551,375

14.02

71.22

213,506

14.20

82.16

$7 to 8

394.076

10.02

81,24

1 55,567

10.34

92.50

$8 to 9

242,819

6.18

87.42

67,362

4.48

96.98

over $9

494,814

12.58

100.00

45,36!

3.02

100.00

Total

3,932,190

100.00

1.503.935 1

100.00

Note: Figures based on Money Income Definition.

Source: Heritage calculations from the U.S. Bureau of the Census, Current Population Survey, March 2000.

family are divided by the reported hours of adult
work during the year, 42 percent of poor working
families appear to have adult wage rates below the
federal minimum wage of $5.15 per hour. This
phenomenon is especially pronounced among
poor families that report over 2,000 hours of adult
employment during the year. Within that group,
52 percent reported effective wage rates that were
below the minimum wage.

Table 4 shows the same data in a different form.
The left half of the table shows the effective wage
rates (annual earnings divided by annual number
of hours worked) of adults in poor families.
Among families with any reported adult employ-
ment, over one-fourth have effective wage rates of
less than $4.00 per hour, and 42 percent have
effective wage rates of less than $5.00 per hour.

The right half of Table 4 shows effective wage
rates among poor families that report over 2,000
annual hours of adult employment. Of these, some
31 percent report wages below $4.00 per hour.

and 51 percent report wages below $5.00 per
hour.

One possible explanation for these low wage
rates would be self-employment. Individuals who
run their own small business may well have effec-
tive earnings below the minimum wage, especially
during start-up years. However, the CPS data show
that only 7.5 percent of working adults in poor
families are self-employed. Among poor families
reporting over 2,000 hours of employment, the
level of self-employment is higher but still not
great: 16.5 percent.

The most plausible explanation of the low effec-
tive wage rates among the working poor is that,
among that group in the CPS, employment has
been slightly over-reported and earnings have
been somewhat under-reported. Overall, the num-
ber of families who work full-time/full-year and
remain poor is almost certainly significantly lower
than the figures shown in Tables 1 and 2. 3

3. To calculate the number of hours of work an individual performs during a year from Census data, it is necessary to multi-
ply the self-reported number of weeks of work during the year by the self-reported average hours of work per week. Since
the figures provided are imprecise, an over- reporting of total work can readily occur.